A customer received financing worth 14,500 JOD from Tamweelcom Company, with the financing being repaid over 60 months with a decreasing/annual interest rate of 15.668%, which is equivalent to a fixed/annual interest rate of 9%.
1. What is the total interest accrued on the financing?
Total interest value on financing = 6,525 JOD, plus 3% sales tax
The value of import stamps on the contract = 45 JOD
The value of a one-time credit granting commission = 165 JOD, plus 3% sales tax
What is the value of the monthly installment that must be paid (principal, interest, and sales tax on the interest)
The value of the monthly installment for the first payment: 353,630 JOD
The value of the monthly installment for the remaining payments: 353,680 JOD, including the principal, interest, and sales tax on the interest.
2. How is the effective interest rate (EIR) calculated for financing?
The effective interest rate is calculated according to the following equation (EIR) = 1-12(IRR+1)
The internal rate of return (IRR) is calculated using Microsoft Excel using the IRR equation according to the following:
In the Value field: we enter all cash flows (negative and positive)
In the Guess field: (represents the expected return): enter “zero”.
The result is =0.02812
3. Which expresses the monthly effective rate.
The effective interest rate (EIR) is calculated by substituting the internal rate of return (IRR) into the following equation:
Effective interest rate = 1-12(IRR+1)
Effective interest rate = 18.312%
